Bellring Brands Inc (BRBR) 2020 Q2 法說會逐字稿

Welcome to the BellRing Brands Second Quarter 2020 Earnings Conference Call and Webcast. Hosting the call today from BellRing Brands are Darcy Davenport, President and Chief Executive Officer; and Paul Rode, Chief Financial Officer. Today's call is being recorded. (Operator Instructions) It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of BellRing Brands, for introductions. You may begin.

Good morning, and thank you for joining us today for BellRing Brands' Second Quarter Fiscal 2020 Earnings Call. With me today are Darcy Davenport, our President and CEO; and Paul Rode, our CFO. Darcy and Paul will begin with prepared remarks. And afterwards, we'll have a brief question-and-answer session. The press release that supports these remarks is posted on our website in both the Investor Relations and the SEC filings section at bellring.com. In addition, the release is available on the SEC's website.

Before we continue, I would like to remind you that this call will contain forward-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors, as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update these statements.

As a reminder, this call is being recorded, and an audio replay will be available on our website. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Darcy.

Thanks, Jennifer, and thank you all for joining us this morning. I want to start by acknowledging this unprecedented time and thanking all the BellRing employees. I've been blown away by the dedication, flexibility and focus our organization has exhibited during this stressful time. I'm proud to say that protecting our employees has been our #1 guiding priority. A special thanks to the frontline employees who work in our German plant and in our network of co-manufacturing and logistics partners. They're invaluable to our success.

Last evening, we were pleased to report record sales of $258 million, up 19% and adjusted EBITDA of $43 million. Performance exceeded our expectations, and I'm encouraged by the progress against all of our growth strategies. Because of our loyal consumers, strong product offerings and stable supply chain, we are able to reaffirm our full year guidance. This morning, I will share some category observations, brand highlights, progress against our growth strategies and end with our outlook. I'd like to start with the broader category and the impact of COVID-19 on consumer behavior.

During our second quarter, the category remained strong at 6.5% as measured in Nielsen, while the liquid subcategory grew 11%. As with most categories, all convenient nutrition product forms experienced COVID-related pantry loading in March. You have likely seen the Nielsen data showing declines in April. We attribute the decline to pantry de-loading, a reduction in on-the-go consumption and a channel shifting to online. Pantry de-loading, which our research says, is the majority of the April decline, will soon end. However, we expect the other 2 dynamics to continue.

Since channel shifting is not a reduction in consumption, but rather a change in measurement from tracked to untracked, I will go directly to the on-the-go usage dynamic. To understand this, let me first share the category usage breakdown, focusing on ready-to-drink shakes. Research says approximately 64% of shake consumption occurs at home and 14% is consumed at work or school. Given shelter-in-place orders, we believe these 2 usage occasions are both now occurring in the home and have grown.

The remaining on-the-go occasions occur when traveling, commuting or at fitness centers and gyms. We believe this on-the-go consumption has declined in April and will continue at a lower level so long as shelter-in-place orders exist. However, we expect the long-term effect of COVID-19 to be positive for the category because of the increased trial gained through the stock-up period.

Now to our brands. Representing 80% of our portfolio, Premier Protein shakes consumption was up 33% in tracked channels and double that in untracked. We experienced strong organic growth as a result of increased marketing and promotions, including our national advertising campaigns, new products and the lapping of capacity constraints. Premier Protein's tracked consumption followed a similar path as the category with a spike in mid-March and a decline in April.

As a reminder, Premier Protein's distribution is fairly equally split across tracked and untracked channels. So equally as important, Premier's April performance in untracked channels was incredibly strong, growing over 50%, with eCommerce growing close to 200%. In summary, Premier Protein's April consumption remains strong despite the COVID category headwinds.

Now to our growth strategies. Our first national television advertising campaign launched in January and across all media platforms generated over 1 billion impressions this quarter. We experienced significant increases in awareness, dollar share and website traffic. But most importantly, our household penetration surpassed our annual goal, increasing from 5.3% to 6.6%. Based on these results, we see television as a key driver for future new households.

Distribution continues to be a major driver. This quarter, we added significant distribution across untracked channels, including club, in both U.S. and Canada and eCommerce. Within tracked channels in the latest 13 weeks, we are growing 79% in food and 84% in drugs. We expect further distribution gains in the back half of the year.

Our new products are also performing well. Café Latte is exceeding our expectations and is now our #2 fastest selling flavor. Protein with Oats is also off to a great start, performing in the top 40% of the category where it is sold.

Now to our smaller brands. Dymatize's domestic business had a strong quarter, up 13%, led by eCommerce. However, both Dymatize and PowerBar's international businesses, which represent 7% of BellRing, suffered as a result of COVID toward the end of the quarter. We expect these declines to continue through Q3 until stores reopen.

I was particularly pleased with our performance of our supply chain this quarter. Even with the unexpected demand spikes in overloaded logistics networks, our supply chain executed best-in-class service. Our shake capacity expansion plans remain on track, and we continue to have inventory flexibility to execute our growth plans.

Now I'd like to come back to our outlook. We exceeded our expectations for our first 2 quarters and have strong momentum against our growth strategies. In summary, better-than-expected Premier Protein performance is offsetting softness on our international businesses, which puts us in a good position to reaffirm our full year guidance.

I'm incredibly proud of our company. Through all of this volatility and uncertainty, our company, our brand promise and our business proposition have never been stronger. I will now turn the call over to Paul.

Thanks, Darcy, and good morning, everyone. As Darcy mentioned in her remarks, the second quarter exceeded our expectations. Net sales grew 19% to $258 million, and gross profit increased 11.6%. Adjusted EBITDA was $43 million, down 12.5%, which reflects our planned incremental marketing and promotional investments behind Premier Protein.

Our overall net sales growth was driven by Premier Protein with the net sales and volume increasing 26% and 27%, respectively. Premier Protein saw great growth driven by distribution gains in club, FDM and eCommerce and benefited from higher promotional and marketing activity when compared to the prior year. In addition, pantry loading related to COVID contributed to the growth for the brand in the quarter.

Dymatize net sales declined 2%. Strong eCommerce growth in excess of 50% as consumers shifted purchases online was outweighed by declines for international and the club channel as we lap prior year promotions. PowerBar net sales and volumes declined 20% and 27%, respectively, with lower international volumes and the impacts from our portfolio optimization strategy in North America.

Turning back to consolidated results. Gross profit increased 12% this quarter, with gross margin declining 220 basis points to 34.3%. As anticipated, the majority of gross margin decline related to higher input costs, primarily milk-based proteins, which we expect to continue through the second half. Higher levels of trade promotions also weighed on gross margins, which was partially offset by lapping the prior year shake price increase.

SG&A expenses as a percentage of net sales increased 330 basis points to 18.4%. This increase was driven by a strategic increase in marketing spend of nearly $10 million, incremental public company costs and approximately $2 million in accounts receivable credit reserves. We expect SG&A to be lower in the second half as we lap the impact of the second quarter marketing campaign. Adjusted EBITDA for the quarter was $43.4 million, a decrease of 12.5% with adjusted EBITDA margin of 16.9%.

Before reviewing our outlook, I would like to make a few comments on cash flow and liquidity. We saw an increase in net working capital in the first half of the year, which was largely caused by COVID and timing-related items on vendor payments and marketing spend. COVID-19 caused a spike in sales in March, which resulted in higher-than-expected customer receivables. We expect operating cash flow to improve in the second half of fiscal 2020 when compared to the first half as some of the working capital timing reverses. In fact, in April alone, we generated approximately $25 million of cash.

Regarding liquidity, we ended the quarter with approximately $77 million of cash on hand. As a precautionary measure to preserve flexibility in light of the uncertainty resulting from COVID-19, we borrowed $65 million under our revolving credit facility. We believe we have sufficient liquidity to satisfy our business needs. As of March 31, net debt was $735 million, and net leverage was 3.5x. Our net leverage target remains 3x, and we plan to reach that in our fiscal 2021.

Turning to our outlook. We continue to expect fiscal year 2020 net sales to be $1.0 billion to $1.05 billion and adjusted EBITDA of $192 million to $202 million. The first half of 2020 came in stronger than expected, largely resulting from COVID-related pantry loading for Premier Protein, which we expect to reverse in the third quarter.

I want to emphasize that while COVID has not changed our full year expected results, it has changed the quarterly guidance. We expect to favor the second half over the first and the pull-forward from Q3 to Q2 reverse that. Likewise, within the second half, we expected Q3 to favor Q4 and for the same reason, that too, has reversed.

Despite the lingering impacts of COVID, we expect the second half to deliver strong double-digit top line growth driven by growth for Premier Protein, and we remain confident in our full year guidance. With that, I'd like to turn the call back over to the operator for questions.

(Operator Instructions) Your first question comes from Andrew Lazar with Barclays.

Darcy, I wanted to start off maybe with some of your comments on household penetration. BellRing still has among the lowest household penetrations of really almost all of the brands that we cover and yet, obviously, the highest repeat rate, I think, even in the nutritional shake category.

So I'm trying to get a sense of -- it's very early, and it's probably very hard to really get too much out of the actual data at this point. But maybe if you have any anecdotal thoughts or evidence around what you're seeing in terms of shopper behavior from those folks that are sort of new to the brand? And likelihood that some of those remain sort of sticky to the brand going forward, given the repeat rates and sort of what you can do, if anything, differently to make sure you're really converting those people? And then I've just got a follow-up.

Sure. Yes. You're exactly right. Our repeat and loyalty is among the highest in that category. And what we have seen historically, and we expect to continue to see, is when we get people to try, because of the 50% repeat, they will repeat.

What we often see is if they try in smaller pack sizes, for instance, in food, drug, Walmart, et cetera, then what happens, they start consuming the product every day, and then they want to start buying bigger packs. And so we've often seen this sort of cycle within our channels as we've -- as our consumers become kind of adopted into the franchise. So we expect to see that same phenomenon with these new buyers that are entering in recently.

And then there's been some discussion that, in addition to some of the recent shopper behavior shifts that you mentioned like the on-the-go piece and all of that, which I certainly understand, that maybe shopper behavior even in the store during this sort of panic-buying phase has been a little different where consumers have been going in, shopping at the center of the store and then getting out as quickly as they can and maybe bypassing some other areas that they might otherwise have gone to like the pharmacy section and whatnot where a lot of your shakes are sold.

I don't know if you're seeing much evidence of that. And if so, does any of that help you, ultimately, when all this passes in terms of the debate and argument with retailers about getting your product more into the mainstream aisle?

Yes. It's a great question. And obviously, with everyone else, we -- this is a dynamic situation. We are seeing shopping trips down as everyone is. And we're seeing rings up. However, what's interesting, we see that as a factor. We just don't see the traffic being the most important, most critical factor.

What we find -- one of the key things that we looked at was different retailers' shelve convenient nutrition products in different places. So in the past couple of years, they -- several retailers have shelved some nutrition bars in the granola aisle. And those -- and whether it's placed in the granola aisle or in the pharmacy, we're still seeing the same declines in April. So that, to me, tells me it's really less about traffic in certain parts of the stores and more about the on-the-go usage.

Your next question is from Chris Growe with Stifel.

I hope you're well. I just wanted to ask a quick question, if I could. Just to better understand the quarterly flow there. I guess, as I'm thinking about the differences between consumption and shipments in the quarter, do you foresee then in the third quarter like a larger inventory kind of restocking occurring there? How does that interact with the fact that the consumer is pantry de-loading as well? So I'm just trying to get a better sense of how Q3 plays, I guess, relative to Q4, how that retail destocking may affect Q3?

Yes. So yes, Chris, it's Paul. Yes. We definitely think that the second quarter pantry loading for -- primarily for Premier will largely be load from our retailers in the third quarter. That's our expectation.

So say that again, then, Paul, is there inventory reloading in the third quarter?

You mean at all -- yes. I mean, so we still look at (multiple speakers).

At retail.

Yes, we look at 2 pieces, right? At retail, we believe our customers will de-load from some of the inventory that they bought late in March because obviously, the consumption pull-through hasn't been quite as strong in April, as Darcy alluded to. And so we'll see the other side of that, the de-load. I think from a consumer perspective, I think there's been some de-loading at the kind of pantry level, but we're starting to see that I think more stabilize. I don't know, Darcy, if you want to add on that at all?

Yes. I think that we saw the spike -- the consumer spike in the middle of March. And then many of our retailers then replenished. So they took in big orders toward the end of March. And so many of our retailers had higher than normal inventories at the end of March, and that's why we said that there's going to be kind of a reversal between Q3 and Q2.

Okay. That makes sense. And then just a quick question for you on your -- just it sounds like the supply chain operated very well. It's not your supply chain or I guess to say the manufacturing is not yours, if you will. It's done by third parties. Are there incremental costs during this kind of environment that you have to bear during this time? Just trying to get a sense of like how that may affected Q2 and, in fact, how that could affect the business going forward.

They are not incremental costs. We did experience some slightly higher transportation costs during kind of that height toward the end of March. But it was nominal, and we don't expect any further increases in costs.

And you had no capacity issues in the quarter? And you don't foresee them, is that fair to say?

Happy to say we did not have capacity issues.

Your next question is from Ken Goldman with JPMorgan.

2 from me. First, I wanted to ask, Darcy, are you able to take advantage at all of lower dairy costs? I know there's some lag, obviously, between when you can buy and when the costs are. But I'm just curious if there's -- if it's possible for you to sort of help us out understand in terms of the timing and the degree to which this might be able to help you in the back half of the year, if at all?

I'm actually going to let Paul answer that.

Yes, thanks. Yes. So you're right. We've seen dairy prices drop from -- we were expecting them to increase throughout the rest of the year and into next year. And with milk prices coming down because of COVID, that does put pressure on protein prices.

I will say that while protein prices are indexed somewhat to non-fat dry milk, it's not always completely in sync, and there are sometimes -- it's a supply and demand within milk proteins as well. So it's not always going to fully track milk, and we're largely seeing that.

But as far as our business and what we baked into our guidance, we baked in second half, it still has increased protein costs as we cover out. I think the opportunity really is more as we look into next year, where -- if protein prices do come down or don't go up at the level that we expected, that will help our bottom line as we get into next year.

Okay. That's clear. And then my follow-up is I know it's hard to know these numbers, and I know we're in a very uncertain time, but it does seem like pantry loading was a big effect. And obviously, you talked about the fact that there's some inventory at retail that maybe has to unwind.

Is there any help you can give us in terms of quantifying how much you expect shipments to lag consumption in the third quarter? Even just sort of the rough justice would be very helpful as we think about modeling.

Yes. So I'll take that one. As we look at our second quarter, we were largely heading on track with our expectations of a high single-digit, low double-digit top line growth. We ended up obviously around 19%. And so from our perspective, that's gap to COVID, that's the benefit that we got from COVID this quarter. And what we're thinking is that that really largely reverses as we get into the third quarter. So our retailers will de-load.

Okay. So really, we should just look at that gap in that period of time, and there's nothing else beyond that that you think we should be factoring in?

Yes. I think from a Premier Protein perspective, that is how we're thinking about the business. That's mostly just from Q3 -- or from 3Q into 2Q. For our international businesses of Dymatize and PowerBar, which are less than 10% of our total revenue due to the headwinds for that business in the third quarter, which will also impact our net sales as we think about Q3.

As we get into Q4, I think we feel that North America business will largely be tracking normally again. And the international business will hopefully be recovering by then, but it's probably a slower recovery for them.

Your next question is from Pamela Kaufman with Morgan Stanley.

I had a question on eCommerce growth. It was obviously very strong during the quarter. I think you mentioned it was up over 200%. Have you seen similar growth rates continue into April and May? And how does this compare to the pre-COVID trend?

Yes. Great question. So we -- during the quarter, we saw about a 150% increase. And then actually, in April, we saw it go up to 200%. So we're actually seeing eCommerce growth increase over time. We -- historically, we've had our eCommerce business represent kind of high single -- mid-single digits within our portfolio. It's now about 10%. So it is becoming a bigger part of our portfolio.

And I think, and in my personal feeling is that we've known this trend has been happening. I think it's not a new trend. Obviously, COVID is accelerating that trend. And I think that it will be here to stay. I think this is one of the lasting impacts of COVID after we are well past a vaccine. I think people are just going to start getting used to a new way of shopping. And I think it will continue being a bigger part of our business.

And then within the tracked channel data, it seems that there's been some uptick in private label share gains in the recent periods. Are you seeing any change in private label competition? And is there any concern about potential downtrading in the category?

Yes. For us, private label in convenient nutrition is still relatively small. So it's still single digits. It is increasing slightly. So it's about middle single digits. Now it's about 7%, 8%. In liquids, it's about 8% or 9%. So it's increasing, but still relatively small portion of the category.

There are certain retailers that are heavy in private label, but most actually don't have private label within convenient nutrition. We're watching it, especially given recession discussions. And -- but what we've found is even when there is a private label entrant, it doesn't affect our business very much.

I think it goes back to our strong consumer and the loyalty and the repeat that we have as well as our flavor strategy. When you have the private labels, usually, what you have is chocolate and vanilla. And in bars, chocolate peanut better, but you don't have the tremendous variety that our consumers expect from us.

Our next question is from Bill Chappell with SunTrust.

I hope you all are well.

Hope you too.

Just one question -- or I guess, first question on the guidance. I appreciate you keeping giving guidance. That's a rarity right now. But just trying to -- I understand that from a quarterly basis, the stock up and then the destock is kind of -- washes out in 2Q and 3Q.

But where are we kind of offsetting that 14% of people who consume on the go, which is obviously going to be tamped down? Is that being offset by just new users that have come into the market in the first 6 months? Or if there's something else to kind of keep you in maintaining guidance for the full year?

Yes. So the information I gave you was from a category perspective. Premier is slightly different. So if you think of -- I talked in my prepared remarks, about 64% of the liquid category is consumed at home. Well, that's actually 75% for Premier Protein.

So already, we have more consumption at home, but you're exactly right. What we're seeing based on some surveys that we did is there's actually -- consumers at home are actually consuming more. And so what you have is you have those people, at 80% or so, consuming more. And then -- and so that -- and you have new consumers. And so that is slightly offsetting the on-the-go.

The other piece is the on-the-go -- the way we look at it is you have the stocking -- the de-loading, which we believe is close to over. Then you have the on-the-go, which we think will last through the shelter-in-place. And then you have kind of this ongoing on the conversion to eCommerce. But we -- so we see it really happening for the next couple of months. But it's not affecting Premier Protein as much as the overall category. I think that's an important point.

Got it. And one question on Dymatize, just trying to understand. I mean, we are seeing, I guess, Germany and some other countries started to open up probably even faster than the U.S. So didn't know -- just trying to understand kind of how that plays out over the next few months.

Yes. Our assumptions are fairly conservative on that front. I would even say that from a Germany standpoint and an EU perspective, we assumed that the EU wasn't going to open up as fast as it looks like it's going to.

So -- but from a Dymatize standpoint, as you all know, we were looking at a single-digit growth by the end of the year. And unfortunately, due to the international business, we think it's going to be a single-digit decline for the year. But I do think it's temporary, and it's [met]. And we expect that by Q4, if not before, that it will, for the most part, recover.

Your next question is from Rob Dickerson with Jefferies.

I guess, just kind of the direct question is on the de-load for the past month or so, the kind of main faster question is, well, what about on-the-go and the category and what's all -- when we all look at the data trend?

The data trend -- let's just say, you know it -- get out there is fairly substantial, right? It's pretty material at least in tracked channels, and it doesn't sound like it would necessarily be that much different than non-tracked channels.

So is it fair to say then if you think that de-load is kind of coming to an end or it's getting better that over the next couple of months, right, when you're in Q3 that we should just see that decline year-over-year hopefully get less bad as consumers de-load? And then that, whatever, 75% of consumers that are consuming more at home, in theory that would be, hopefully, also helping to offset the decline in away from home or on-the-go?

That is exactly how we're thinking about it.

Okay. Cool, that's good. And then I guess on the promotional side, kind of on last quarter's call and kind of ahead of all the COVID-related shifts, kind of the conversation was fairly centered around promotional timing. And sometimes, that has to do with innovation, sometimes it doesn't.

Are there -- have you sensed changes in the promotional calendar now from even a couple of months ago? And maybe how you think about kind of overall A&P spend as consumers are -- I mean, as they would be de-loading and then also as they are home watching television and consuming media in various ways?

Yes. So 2 pieces of that. One is any changes to our promotional calendar, and our promotional calendar is essentially the same as when we previously communicated. And then the question about A&P spend and any changes there. Yes, I mean, we actually see this as an opportunity.

We've had success with TV. There are more people at home, watching TV. And so we're actually on television again right now. And we are going to continue to look at that for the remainder of the year. And that was -- I will say that that was largely planned. And so what we did is we moved it up a little bit, but for the most part, it was largely planned and baked into our guidance.

Your next question is from David Palmer with Evercore ISI.

Actually, just a follow-up first on that point about advertising and promotion and even your innovation. Coming into this year, you had plans to spend up a decent amount. If you had a crystal ball, maybe you wouldn't have done that -- some of the spending or at least to that degree because you get the essentially free trial from COVID itself.

So how are you thinking about the return on investment and how much of that money is already spent? But -- and also just how, given the fact that COVID does change the game, perhaps you want to lean into digital channels more or something else. How are you adjusting how you go-to-market promotion marketing? And then what your retailers are essentially allowing you to do through this year?

Sure. So the ROI from an advertising standpoint, I mean, we started -- our plan was to focus our advertising at -- during the [New Year, New You] when the most people enter into the category. I still think that is -- that was a sound decision and I look at our metrics and they are very positive. So I think that is a --- as a big success.

As far as putting more in digital, our plan already has a very good combination of kind of linear TV as well as digital. So we are -- the one area that we are pivoting is, like many other CPG companies, we're spending more time on social, eCommerce, we're pushing but again -- and we're adjusting our communications. So we're adjusting how we communicate to consumers and focusing more on the -- at home.

I mean -- so we know -- an example of this is we know that recipes resonate with our consumer, well, on -- when we're talking about on social. And so those are the type of things that we want to give consumers more of. Was there another question?

No. I mean, well, the only -- if there's a retailer angle about how just basically getting done what you wanted to get done, how that might be changing with retailers?

Yes. So from a promotional standpoint, we have seen some slight delays in promotions and slight delays on resets. But we, so far, have not seen any canceled resets. And so we are -- and actually, we've seen some opportunity here where we've actually executed incremental promotions with certain retailers. So it's definitely a dynamic situation, but we have not seen a tremendous -- we haven't seen cancellations, but rather movement.

And then the second quick one is, we've heard there's Tetra Pak shortages out there. Is that something you're seeing in the marketplace? And given the fact that you're a scale player, I'm wondering if that might even be an opportunity where there might be players that don't have enough supply out there, and I'll pass it on.

Yes, we are having no problems with supply on any of our packaging or ingredients.

Your next question is from Brian Holland with D.A. Davidson.

I wanted to kind of probe on the composition of your consumer given that such a large percentage consume the product at home. So maybe the first question is -- and maybe this answers the question, but obviously, we're seeing what's happening in the tracked channels with your data, but you mentioned the 200% growth of consumption in eCommerce, 50% overall in non-tracked channels. So obviously, club may be doing a little bit softer than that.

But is there a difference between the consumer that's going into the club store buying your product than the tracked channel? So maybe the folks who are consuming the product at home are buying more in club and the folks who are on the go are buying in the other channel. Is that maybe the disconnect there?

So when you break down, when you look at tracked, I guess, although we -- the way I described it was tracked versus untracked. When you look at the channels for Premier, what you start seeing is actually the channels and the retailers that are having success with Premier are mostly those who have expanded distribution of Premier or are supporting it with promotion.

So -- and that goes both on tracked as well as untracked. For instance, in April, food for Premier was up 31%. Drug was up 18%. So I think that it becomes more about the retailers who have -- retailers in the channels who have kind of gotten behind Premier and expanded distribution, and they're able to offset the COVID headwinds.

Okay. That's helpful context. And then I guess going into this, I thought the current dynamic might set up such that there would be pent-up demand. As folks look to migrate back towards convenient nutrition, we're hearing about more kind of indulgent-type purchases spiking in this backdrop, so folks maybe need to reduce or just kind of get back into a normal habit.

But it sounds like the percentage of your core customer, or maybe there's a lower percentage of your core customer that's actually impacted by the current dynamics, or maybe I would have thought. So is pent-up demand, is that something that is a real opportunity for you? Or maybe not as much if your core -- a few of your core consumers are really impacted by what's happening right now as far as the way they consume?

So no, I think that there will be pent-up demand. I think that -- so if you look at the different kind of need states within convenient nutrition, you see a couple of areas. You see some areas like adult nutrition, which have done very well during this COVID time. Obviously, they target an older individual, which may feel vulnerable during this time specifically in the pandemic. So they are buying a fair amount of product.

Then you've got the kind of diet side which actually are declining and mainly because consumers are at home stress-eating and they're with their families. Then you've got the sports nutrition side of things that gyms are closed, it's more on-the-go. And so those are suffering a little bit. And you think of those second 2 specifically that that absolutely will rebound and I would expect will rebound in a bigger way.

And what -- and I think it will be great for the category because I think you'll have more people coming to kind of the pharmacy section. And I think -- and what's unique about our brand is, yes, we kind of live in this everyday nutrition need state. But we access and we -- all of the other need states, so we will get our fair share.

Your next question is from Ken Zaslow with Bank of Montreal.

Just one question. When I think about the longer-term impact of COVID-19 and you get your business back, will your business be better, neutral or worse off? And why or why not?

I believe it will be better. I believe that, especially during this -- there are 2 pieces. The first is during the stock-up period, we know we got new households. Not only did we hear that from the survey, we saw it in the household pen.

So -- and then -- so I believe that the up -- I think, the down is temporary and the up -- actually, we got new trials, which will then get those consumers to repeat and have a lifelong consumer. The second piece is, I do believe that after this, there is going to be pent-up demand. And I think we're going to have more traffic coming into our category.

So would it be fair to say that your longer-term growth rate, your top line sales growth, could be up another 100 to 200 basis points for beyond 2020, like 2021, 2022 and beyond? Is that a reasonable way of thinking about it? And at the same time, your cost structure does not get impacted, given how you guys go-to-market?

I don't think I'm at the position -- I don't think I'm in a position right now to really look at that long term. Right now, we -- I do believe there's upside but we're in the thick of it right now, Ken. So I haven't quite quantified it to really get a sense of how big the upside could be.

Your next question is from John Baumgartner with Wells Fargo.

Darcy, I wanted to ask big picture about the innovation pipeline. I mean, there's an increasing amount of optionality across this category in terms of specialized products.

And I guess, given that new products are part of your longer-term growth plan, can you speak a little bit to that pipeline? How much activity you have there at this point given the dislocations? And then how you're anticipating any net positives or net delays in that activity resulting from this COVID environment?

Thanks, John. Our innovation pipeline is unchanged from the COVID environment. I'm continuing to be so impressed by our R&D team and their creativity on how they're getting things done. We still have a kind of skeleton crew in our lab. And they're moving projects along.

Bigger picture on the innovation pipeline and how we're looking at it, you can look at our successful launches this year around Café Latte, where it had -- it's the first time where we had a benefit, a benefit to our shakes with the added benefit of caffeine. So we're looking at that as an interesting way to go. I think where we want to take it is we want to take innovation is within liquids, is looking at incremental consumers and incremental need states and incremental occasions. So we will continue to launch products that go in all 3 of those directions.

Your next question is from Jason English with Goldman Sachs.

I want to come back to the idea and the notion of this pent-up demand and when we all emerge from quarantine and sheltering at home, we're going to have sort of a kick-start. Another New Year's resolution, if you will. It's an interesting notion and certainly personally resonates with me as I spend way too much time sitting behind the computer screen here at home right now and snacking too much.

Have you approached your retailers with this sort of concept yet? And is there any inertia underway at the trade right now to prepare for any sort of programming activation around that concept?

To be honest, I think the retailers are just trying to get labor and get through this crisis. So however -- and making sure that they have resets on time and promotions on time. However, I think a big time for the category, the 2 biggest times for us and the category really is around New Year, New You as well back-to-school.

So I see the back-to-school timing as a very interesting time to reengage consumers. And most of the time, the retailers will make kind of a big splash during that period of time.

That's interesting. Why do you think back-to-school resonates so much? I would have thought you would have said like swimsuit season kick off this summer, like we see so many with other nutrition weight management products.

Yes. I think it has to do with just the higher traffic in the stores. And because they're really -- what's unique about this category is, with the exception of -- November and December being about a 90 index and Jan, Feb, March being a higher index, for the most part, consumption is pretty stable. So then it becomes, okay, when do you have the eyeballs in the store where you can get people's attention, and I think that's where back-to-school comes.

Got it. That makes sense. I'll pass it on. Congrats on a good quarter and congrats on navigating all this turbulence so well.

Thank you, Jason.

There are no further questions at this time. Ladies and gentlemen, thank you for participating. This concludes today's conference call and webcast. You may now disconnect.